Non-linear Break Even Analysis

If assumptions of constant price and AVC are relaxed we get non-linear break even analysis (Fig. 6.11b). There are two break even points Q₁ and Q₃ Profit, the vertical distance between the total revenue and total cost, is maximised at output rate Q₂' The output rate Q₂ is relevant when the firm begins to earn profits. The firm should not produce beyond Q₂ because this would lead to reduction in profit. No rational manager will expand production to second breakeven rate Q₃ and, therefore, it is irrelevant. 

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